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distributed in a number of smaller prizes large enough to attract attention in communities throughout the Nation. This sum would be large enough to permit the giving of 10 prizes of $100,000 and 20 prizes of $50,000 each, with $17,000,000 in smaller prizes. If $5,000,000 of this were used to give 50,000 prizes of $100 each, some one in each sizable community would gain a prize large enough to attract local attention. Such advertising would stimulate coupon sales to a Nation-wide army of bond buyers and hence aid the Secretary of the Treasury to raise large sums of money at low interest rates without bringing about any inflation of the Nation's money supply. At the same time, millions of individuals

vould be induced to save 90 percent of what they would otherwise gamble away, and funds thus accumulated would be very helpful to them in the future.

4. As soon as the first 40,000,000 coupons were disposed of, another series of 40,000,000 would be offered for sale. And so on.

The fact that the evils of gambling are so widely recognized should lead to general approval of Mr. Pettengill's unique plan for turning the desire to take a chance from a menace into a device for encouraging thrift. Unless some such plan is utilized to aid Secretary Snyder to float loans at a low interest rate, the conflict between him and the Federal Reserve Board may continue, and time alone will tell which will win public support, and what will be the final outcome.

If the Government can approximately balance its budget, and if Mr. Snyder can actually market at 272 percent enough savings bonds to make up any temporary deficit, he can claim the laurels. But if he cannot sell to the public the required amount of such bonds but instead forces them upon the Federal Reserve banks, inflation will result, prices will climb, and the Federal Reserve Board members can thereafter greet Mr. Snyder with an acrid "I told you so.” And thrifty Americans will pay the piper.

You can help bring about better understanding of the financial problems confronting your Government and the Congress--how best to prevent inflation. Distribute this statement to your associates and individuals interested in banking problems. Your Congressmen and Senators may be interested in an expression of your viewpoint.

Write for three free copies prepaid anywhere; 12 for $1; 40 or more, 5 cents each: Ask for Federal Debt Policy and Inflation.

Distribute also Spotlight No. 3, How To Save $7 Billion, by Senator Harry F. Byrd; Spotlight No. 4, Thrifty Americans Guard Your Savings, by Dr. Willford 1. King; and Spotlight No. 6, Inflation-and How To Avoid it. One copy free on request; in bulk, 10 or more, 2 cents per copy.

Spotlight will bring you valuable information from the country's outstanding leaders on the issues under the headlines each week, 2 copies per week; single yearly subscription, $12; 2 to 8 subscriptions, $11 each; 10 or more subscriptions, $10 each.

Committee for Constitutional Government, Inc.

205 East Forty-second Street, New York 17, N. Y. The CHAIRMAN. The next witness is Mr. Benjamin A. Javits, president of the Independent Investors, Inc., New York City.

Will you give your name and address and the capacity in which you appear to the stenographer for the benefit of the record?



Mr. Javits. My name is Benjamin A. Javits, 630 Fifth Avenue, New York City.

Mr. Mills. I might say, Mr. Chairman, at this point, that I understand Mr. Javits now appearing before us is the brother of our distinguished colleague, Mr. Jacob Javits.

Mr. Javits. I want to thank the committee for renewing its invitation today, because I found it impossible to make a plane yesterday morning. They cut the plane out that I was on.


Independent Investors, Inc., is an association of small independent, investors from all over the United States. The organization is in no way tied up with management or banking groups. All of its officers and directors are independent investors who are neither officers nor directors of corporations.

The principal purpose of this organization is to make the American people aware of the little fellow's stake in the American economic enterprise and to make the investor an active constituent of it. There are as many investors throughout the United States as there are laborers and farmers; in fact, laborers and farmers themselves are investors. Its purpose is also to so develop our relationship with Members of Congress and the Government that we may be helpful in representing the independent investors' point of view, which too often is lacking.

In this hour of stress, the country needs all the revenue that it can get. We do not argue with that proposition. But we do wish to present our views with respect to (1) how the money should be raised; and (2) the ways in which more revenue could be raised with fairness to all.

First, we are particularly concerned with the proposed revision of the capital-gains tax. Because it represents a confiscation of capital the capital-gains tax is, of course, wrong in principle. Property owners should have a right to exchange their property for other property, or even for money, without penalty. The capital-gains tax is a

, penalty on the freedom of exchange, and on the freedom of ownership,

I may say here that the principle on which the Independent Investors Association operates is that as you invade the right to own, so you invade the right to democracy, because the right to own a tangible is just as important as the right to own an intangible. In other words, American democracy is based upon the great freedom to exercise intangible rights and every nation that has invaded the tangible rights of the citizens has destroyed their intangible rights.

The workingman who has bought a house, or built one, 20 years ago for, say, $6,000 cannot replace that house today for less than $15,000. Therefore, it seems unreasonable to penalize him $2,250 in taxes when he sells the house. The same holds true for securities.

People who buy securities for investment shouid be considered as investors and not as buyers and sellers of securities. The capitalgains tax does not apply, of course, to dealers. But, quite aside from this problem it has been shown by statistical studies that the Government could get far more revenue from a capital-gains tax of 15 percent, for example, than from the present one of 25 percent.

May we specially emphasize that no investor should be penalized or discriminated against on the basis of securities or property held by him prior to July 1, 1950, under the 6 months' holding period section. I say that because if you amend the law in any way, if you should happen to raise it, which I hope you do not do, I believe that you should exempt from that increase those who have held that property prior to July 1, 1950, because if you do not, the people who sold their securities after July 1, 1950, and paid the 25-percent tax, would be preferred as against those who held their securities before that and did not sell.

Security holders and other property owners who sold their property during the last half of 1950, and who had

held it for 6 months, would

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be markedly preferred if there should be any increase of the capitalgains tax in the new bill.

We firmly believe that if Congress would reduce the taxes on capital gains to 15 percent and would shorten the period required of ownership to 3 months the Government would in all probability receive twice as much revenue as it gets from the present capital-gains tax. We submit also that if the suggestions here made are followed the revised law should include the following proviso: if, within a trial period, the total revenue from capital gains be not increased at least 25 percent by dint of having reduced the tax rate to 15 percent, and the holding period to 3 months, then the capital-gains tax of 25 percent should be retained or even increased retroactively on all capital gains made during the period in which the 15 percent tax rate obtained.

I do not know whether Congress has ever tried that or not, but that is the fair way to try it. I think it will produce the revenue.

Second, we believe that a general sales tax is the best means of raising pay-as-you-go income. We have no quarrel with labor's point of view, nor the point of view of any other special interest group, but we do believe too much political emphasis has been placed on labor's historic opposition to a general sales tax. By a general sales tax we mean moneys or the equivalent received for sales of goods or services of any kind, nature or description with no exemption.

Labor pays its full share of the taxes in any event. A general sales tax would better indicate to labor how much of its work goes to support the necessary Government activities. It would also place in its proper perspective the position of the growing investor group in this country-particularly the annuitants, who, for the most part, are workers. Unless the integrity of private investment is maintained, and the principle of it is fostered, even during wartime, we are fighting a losing battle for the kind of economic system in which we want to live. Free enterprise must be supported by freedom to invest and to

Labor in the aggregate today is our largest investor. Wall Street is now becoming Main Street.

Independent Investors, Inc. offers its services and facilities in any way it can be useful in the mobilization of the investors of Main Street. These men and women are the owners of Wall Street.

The CHAIRMAN. Mr. Mills.

Mr. Mills. Mr. Javits, you were here this morning, I presume, when Mr. Ruttenberg of the CIO testified with respect to capital gains?

Mr. Javits. Yes; I was.

Mr. Mills. To refresh your recollection as to what he said, turn to page 10 of his prepared statement. There is such a divergence between what he has to say and what you have said here about laboring people owning stock. I am wondering if the two statements are irreconcilable, or if I am in error in concluding that there is a difference between them.

Mr. Javits. You mean between Mr. Ruttenberg's statement and mine?

Mr. Mills. I notice on page 10 he says:

Capital gains are a common source of income to the wealthy. For example, less than one-half of 1 percent of the income in the lowest net income class comes


through capital gains, while in the $500,000 class one-third of income is derived from capital gains.

On the other hand, you say that the laborers themselves were the largest of the investors.

Mr. Javits. That is true.

Mr. Mills. If the amount invested is small, the two statements could be correct then; is that right?

Mr. Javits. Well, they are reconcilable. Confining it to the question of the number of investors, they are reconcilable.

Mr. Mills. You referred to a number of investors with small amounts invested?

Mr. Javits. That is right. You take any of the first 10 large publicly-owned corporations. Of course the largest is the American Telephone & Telegraph; it has almost a million stockholders. I think General Motors is the second largest. It is quite inconceivable that there are 400,000 to 450,000 stockholders in General Motors who have income of over $5,000 or $6,000 a year. There are hundreds of thousands of stockholders in A. T. & T. and in General Motors who own from 1 to 20 shares of stock. A good many buy them on the installment plan, especially with this mutual fund development of recent years.

Mr. Mills. Tell me a little bit about the organization you represent, Independent Investors, Inc.

Mr. Javits. It is an outgrowth of another organization which I organized about 9 years ago with Mr. Forbes called the Independent League. About 2 years ago Mr. Forbes apparently made up his mind to permit management to get into the operation and control of the organization, and I felt that at some future time that would be very unfortunate because any investor group that could be effective down here particularly would have to keep an integrity of its own and not be subject to some Congressman or Senator making it appear or show that it was a cat's paw for either management or the National Association of Manufacturers or the United States Chamber of Commerce or somebody else. I do not say that invidiously at all. Therefore I developed this new organization.

Mr. Mills. Is this present organization one that deals directly with investors?

Mr. Javits. That is all, it deals only with the investors. Of course there are people who are members of it, like vice president and president of corporations, large owners of securities, too, but they have no participation as management in any way, shape, or form.

Mr. Mills. I notice you mentioned that the organization is in no way tied up with management or banking groups, and that the investments are largely in stocks and bonds.

Mr. Javits. Policyholders. Of course there are many duplications but statistically there are 70,000,000 policyholders in the United States. Statistically there are 46,000,000 savings bank depositors. There is an enormous amount of duplication. They come under the head of investors and have never been mobilized.

That is another reason for the organization, because we believe that you people are subjected to unfair pressures. Not that you respond to them but you have the pressure of management, the National Association of Manufacturers, the United States Chamber of Commerce particularly, and others, and you have the pressure of the

labor people and farm people; but the little independent investor is not really represented around these parts. It is that stake that I think should be called to your attention and that group represented so there will be an even set of pressures at least. I think your conclusions as a result would be probably a little better. It is not because of your fault but because that point of view has not been presented.

May I add this in connection with your calling my attention to Mr. Ruttenberg's statement regarding capital gains? The only difference between Mr. Ruttenberg and me is the difference in that old saying, “You can take a horse to water but you cannot make him drink." It is perfectly true if people would sell their securities and a larger rate was imposed, sure, you would get more revenue, but the fact is they do not sell their securities because you have this rate. They will be less inclined to sell their securities if

you increase the rate.

Mr. Mills. I was coming to that point. Now the capital-gains tax of course applies to the sale of capital assets other than stocks and bonds. Have you studied the possible effect at the present time of a reduction in the rate of the capital gains tax on inflation, on prices of property?

Mr. Javits. Yes. I do not think that has any great direct contribution to inflation. I will explain why later if you wish me to. From that standpoint I think it would reduce the price of property because people would be more willing to sell and dispose of their holdings.

For instance, take my own case. I own certain securities which I have had for maybe 15 to 20 or 25 years. When I figure out the return after paying the capital-gains tax, it does not pay me to sell the stuff for another security. If the tax were less, I would be very much inclined to sell and look for a bargain somewhere else.

After all, you must remember this, that the capital-gains taxpayer is a hunter for bargains. He is using his own enterprise in that area and he is trying to find hidden values. That is how the Government can benefit by giving him a greater incentive to find out where the hidden values are and pay the Government its share of his acumen or his ability, which you are not getting today.

Mr. Mills. I have been concerned about the possible effect on prices of property, farm properties, for example, of a reduction in the capital-gains tax. We have gone through periods where farm prices have been highly inflated, as you perhaps know. Would there

, . be likely to be any great inflation in farm prices, for example, if we reduced this capital-gains tax, and made it easier to sell, and less tax to be paid if the sale occurred?

Mr. Javits. You have got another problem there with which I am not very familiar, although I am just becoming a farmer myself in a small way, and that is this: You see, you have with the farmer, as I see it in my own way, he is a special ward of the Government. He is getting an awful lot of aid and assistance and cash.

Mr. Mills. Let me interrupt you right there. Your fellow farmers will not welcome you into the circle if you let that statement stand.

Mr. Javits. No, I am telling you how a layman looks at it. This may all be for the benefit of the economy, and I do not say it is not, ultimately probably it is, but I am trying to answer your question. But I think a lot of that inflation that may be present in farm prices

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